Tiered Regulation and Regulatory Relief




  •   Community banks need regulatory relief to support the credit needs of their customers, serve their communities, and contribute to their local economies.
  •   CBAI supports ICBA's “Plan for Prosperity” which contains a number of targeted provisions that would provide regulatory relief for community banks.
  •   ICBA and CBAI urge Congress and the regulatory agencies to continue to expand and refine a tiered regulatory and supervisory system that recognizes the significant differences between community banks and larger, more complex institutions in terms of the risks they pose to consumers and to the financial system.
  •   Thresholds for regulatory accommodations, and exceptions and exemptions for community banks based on size and transaction volume should be continually reviewed and adjusted upward as the average asset size of banks increases.
  •   Regulators must not exceed their proper scope by discouraging or unduly scrutinizing community banks providing payment services to legal and legitimate customers safeguarded by appropriate risk controls and monitoring.


    Regulatory and paperwork requirements impose a disproportionate burden on community banks which diminishes their ability to attract capital, support the credit needs of their customers, serve their communities, and contribute to their local economies. Mega banks have larger dedicated legal and compliance staff and can more easily absorb regulatory costs. Credit unions and other nonbank institutions that perform “bank-like” functions and offer comparable bank products and services are not subject to the same laws and regulations as community banks. This uneven playing field places community banks at a competitive disadvantage and inhibits their ability to serve consumers and communities.

    In the 112th Congress (2011-2012), ICBA and CBAI promoted the Communities First Act (CFA) as the primary legislative vehicle of our regulatory relief agenda. A principal CFA provision was signed into law in April 2012 as part of the Jobs Act legislation. That provision increased the Securities and Exchange Commission registration threshold for banks from 500 shareholders to 2,000 shareholders, and increased the deregistration threshold from 300 shareholders to 1,200 shareholders. As a direct result of this provision, approximately 100 publicly held community banks have been able to deregister and eliminate the significant costs associated with SEC regulatory requirements.

    In January of 2013, ICBA launched and CBAI supported the “Plan for Prosperity” (PFP), a platform consisting of a dozen legislative provisions that would provide targeted regulatory relief for community banks. Unlike the Communities First Act which was embodied in a single legislative vehicle, PFP serves as a platform for provisions to be introduced as separate bills and thereby move more easily through the legislative process. Examples of platform provisions include exemptions from new mortgage requirements, removing ownership restrictions on Subchapter S banks, and raising the threshold of the Federal Reserve’s Small Bank Holding Company Policy Statement to bank and thrift holding companies with less than $5 billion in assets. One provision relating to an exemption from municipal advisor registration for bank employees has been resolved pursuant to an SEC rulemaking in 2013. Another provision relating to the elimination of annual privacy notices passed the House in 2013 and is very close to passage in the Senate.

    In the first session of the 113th Congress, 23 separate bills containing one or more PFP provisions were introduced in the House and Senate. The PFP bill which has garnered the most co-sponsors is the “Community Lending Enhancement and Regulatory Relief Act (CLEAR Relief Act). H.R. 1750, the House version of the CLEAR Relief Act, has more than 100 bi-partisan co-sponsors (as of February 2014) while S. 1349, the Senate version has 23 bi-partisan co-sponsors.

    More broadly, ICBA and CBAI strongly support a system of tiered regulation—regulatory and supervisory policies that differentiate between community banks and other financial services providers. For example, a highly-rated, well-capitalized community bank should be allowed to file a “short form” call report in two non-consecutive quarters each year. The short form call report would provide sufficient material information to allow regulators to assess the safety and soundness of a community bank, but would be significantly less burdensome to prepare. The average call report for a $100 million dollar bank has grown from 29 pages in 2003 to 72 pages today.

    The Dodd-Frank Act provided for tiered regulation in several areas including an exemption for community banks from Consumer Financial Protection Bureau examination and enforcement, and indemnification of community banks from FDIC premium increases that will result from increasing the Deposit Insurance Fund minimum reserve ratio from 1.15% to 1.35%. Other examples of tiered regulation can be found in the final Basel III rule including allowing community banks to continue using the Basel I mortgage risk weights, the exclusion of accumulated other comprehensive income (AOCI) from the definition of regulatory capital, and the grandfathering of tier one treatment of trust preferred securities (TruPS) for banks with assets under $15 billion. In addition, the CFPB made special accommodations for community banks under the “ability-to-repay/qualified mortgage” rule and the mortgage servicing rule. These provisions are critical to avoid subjecting community banks to unnecessary regulatory burden, but more is needed. The basic framework of financial regulation should be based on the principle of tiering proportionate to size, business model, complexity, and risk. ICBA and CBAI will continue to advocate for meaningful regulatory reforms including tiered regulation for community banks, their customers, and their communities.

Links to Additional Information:

Tiered regulation section of CBAI's 2014 Federal Policy Priorities

ICBA’s Plan for Prosperity

ICBA's Plan for Prosperity Legislative Tracker

Bipartisan and Bicameral Support Grows for the CLEAR Act

Staff Visit to Washington Reinforces Support for Community Bank Positions

CBAI's 32nd Annual Call on Washington Highlights